Adjusted expectations reflect stronger than anticipated Q2 home price growth
Fannie Mae’s Economic and Strategic Research (ESR) Group has updated its housing market forecast, downgrading new home sales expectations while upgrading existing home sales projections.
The ESR Group expects home price growth to moderate in the coming months, despite stronger-than-anticipated growth in the second quarter. Annual home price growth rates are forecast to close at 6.1% in 2024 and 3.0% in 2025.
“The housing market continues to wait for affordability to improve, even as the supply of new and existing homes for sale slowly rises,” Fannie Mae chief economist Doug Duncan said in the group’s commentary. “The slight decline in mortgage rates of late, following data pointing to gradually slowing economic growth, has not been enough to overcome the significant affordability constraints imposed on would-be homebuyers. As such, despite more homes being listed for sale, actual home sales have not picked up.”
The report noted a more than 30% increase in home listings compared to last year. However, certain indicators of housing activity remain soft, including fewer existing home sales in May compared to the previous year. The Fannie Mae Home Price Index showed a 3% non-seasonally adjusted increase in home prices during the second quarter.
Regional volatility in listings and home prices was also highlighted, with many large Sunbelt metros now having inventory levels matching or exceeding those of 2019.
“For instance, many Sunbelt metros are currently seeing significant increases in for-sale inventories, in part due to new construction, while supply in much of the Northeast and Midwest remains extremely tight,” Duncan said.
Regarding broader economic factors, the ESR Group has made only modest revisions to its growth outlook. However, due to lower-than-expected Consumer Price Index (CPI) readings, inflation forecasts have been revised downward. The CPI is now expected to end the year at 2.9%, while the core Personal Consumption Expenditures (PCE) Index is projected to reach 2.5%.
Given the improved inflation data and signs of a slowing labor market, the ESR Group now anticipates the Federal Reserve will cut rates in both September and December.
“In aggregate, we expect these varied market conditions to lead to a slight decline in total new home sales nationally for the full-year 2024, but a slight increase in existing home sales,” said Duncan.
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